Supply Chain Planning has been evolving over the years. New techniques for better and more efficient supply chain management and planning are coming out everyday. In the 21st century, supply chain is considered to be one of the biggest developments. Many universities have developed Supply Chain as a separate course and offering programs which specialize in supply chain management.
Supply chain management is not a tactical approach anymore; it has moved beyond that, it is now a strategic part of the organization. According to the report by Melnyk, S., Lummus, R. et al. on Supply Chain Management, there are three new trends which have been identified, supply chain has become a strategic part of the business because companies can now gain a competitive advantage through an efficient and low cost supply chain; it is dynamic and customer driven. The supply chain is considered dynamic because it is constantly changing, and it is customer driven as now supply chain is focusing on the value propositions that will attract customers.
Previously much focus was given to the upstream but in recent years this focus has shifted to the whole chain and not just any one single part. Also, supply chain is not operating by itself; it needs to integrate with the whole organization to ensure timely and efficient supply chain practices by the company.
According to Hitachi Consulting there are six key trends which have changed the paradigm of supply chain management. These are demand planning, globalization, outsourcing, increased competition, shorter and more complex product lifecycles and closer integration and collaboration with suppliers.
In general we can see that the following trends have emerged in the field of logistics and supply chain management:
Agile Supply Chains
Postponement and Decoupling Point in Supply Chains
Carbon Footprints & Green Logistics
Electronic Logistics Markets
Supply Chain Collaboration
Information Enrichment and Visibility in Supply Chains
Factory Gate Pricing and Consolidation
Vendor Managed Inventories in Supply Chains
FACTORY GATE PRICING & CONSOLIDATION
Factory Gate Pricing is the point at which the buyer takes control, according to Hines, T. in his book, Supply Chain Strategies. By the term factory gate it means the point at which the product has been completed and is in a state which the buyer can purchase or pick up. At this point there is nothing more that can be done to the product, nothing more is expected from the buyer. In other words, this is the point at which the ownership of the goods is transferred, the goods are no longer the responsibility of the supplier; the ownership has moved to the buyer.
In factory gate pricing it is very easy to differentiate between the cost of the product and the cost of transportation. The transportation decisions are complex and will depend on a number of factors, including; where the factory gate is, the volume and dimensions of the product, the lead time and the delivery date for the product, geographical coverage, and perish-ability of the product. The factory gate itself can be one of three locations which should be mentioned in the contract, these locations are: the manufacturer’s site, port of entry into the country and manufacturer’s warehouse or consolidation point. (Hines, T. pg 325)
When the product is delivered to the buyer, then it is not easy to determine between the transportation costs and the product costs. When the buyer knows the cost of transport he can make informed choices as to which mode of transport he would prefer, keeping in mind the cost of the different modes of transportation. Also, when only the product cost is known, it is easier for the buyer to compare different suppliers and the costs that they are offering. It basically allows for greater transparency.
The factory gate pricing is a trend which is being driven by the retailers in the UK, according to an article by Analytiqa. The retailers are trying to push out extra costs from their supply chain and the method that they have adapted is factory gate pricing. Tesco is the main driver of this trend, from March 2004, around 66 per cent of the volumes for Tesco came through factory gate pricing.
Consolidation is another new trend which has gained much momentum. Consolidation is something which affects everyone in the value chain, i.e. the customers, the suppliers, and the employees. One thing to remember in the case of consolidation is that it may not be for everybody. Babel, R. in his article says that there are many things which need to be considered before a company can launch a consolidation plan for its supply chain, these include; the labor, logistics, the automation that is required and the necessary technology to support the automation and customer service.
The reason why many companies are adopting the concept of consolidation is because they all want to reduce the costs and improve the customer service levels that they are offering to the consumers. Although there seems to be a rise for this trend which can also be seen in the acquisition of Tibbett & Britten by Excel, through this acquisition Excel has been able to consolidate its supply chain and logistics around the world, there are some issues which need to be looked at.
These issues include location of the warehouse or the transportation costs which are associated with delivery and freight charges. Also, the cost of consolidating is high because technology may need to be upgraded with new automation. Another issue may be that the company has adopted consolidation but this is not benefitting the customers in any way. In such cases, the costs must be weighed against the benefits before adopting and going for consolidation.
CARBON FOOTPRINTS & GREEN LOGISTICS
The carbon footprint relates to the carbon emissions that a company makes. Thus each and every product contributes to the carbon emissions leaving a carbon footprint in the environment. Companies are now trying to reduce their emissions and indirectly reduce the carbon footprint of their products. The idea is to reduce the carbon footprint and mitigate the risk of climate change.
This trend towards reduction in carbon emissions has gained importance because of increases in energy costs of the company and that of its suppliers. Also, companies which are reducing their carbon emissions are being rewarded where as others are being penalized through new legislations. The knowledge of the consumer is also increasing; they have become more aware of the actions of companies and their repercussions on the whole world. This has created opportunities for companies to produce products which are environmentally friendly and are low in carbon footprints.
An important thing to remember is that the carbon footprint does not only include the carbon dioxide emissions but all greenhouse gases which are harmful to the environment. These carbon emissions should be measured across all the steps involving the product, i.e. starting from the raw material, the supply chain, the production process till the recycling of the product. According to Carbon Trust, this process is called the carbon life cycle analysis and it helps understand why these emissions are being generated in the first place and how the products that make these emissions are produced to meet the needs and wants of humans.
The carbon lifecycle analysis helps understand each and every step of carbon emissions and it also helps in identifying opportunities which can reduce these emissions. The end result is that the carbon footprint of the product is greatly reduced. The carbon life cycle analysis considers the whole supply chain as one company, thus any reduction will take place across the supply chain which will have a greater impact as compared to the traditional carbon management approach that was previously being used.
Green logistics as the name suggests are logistics techniques which are environmentally friendly and sustainable in the long run. The traditional concept of logistics focuses on areas such as transport, warehouse, packaging, and inventory management. The green logistics concept focuses on the reverse logistics of products which includes recycling, waste management and proper disposal techniques. Green logistics is known by many other names including, reverse logistics, reverse distribution and reverse flow logistics.
The market for green logistics has become important and quite large. There are two kinds of green logistics, one is recycling and the other is proper disposal of hazardous waste such as toxics and chemicals. The recycling part of green logistics is managed by the customers who give different items for recycling; they leave these outside their house. The disposal of waste takes place at specific sites, where all the necessary waste is deposited.
Rodrigue, J. Slack, B. and Comtois, C., mention in their article a new trend which has emerged within green logistics. Companies have become increasingly responsible for taking back the used products. Thus the delivery of new products and the collection of used products is the company’s responsibility. Many initiatives have been taken by the logistics industry, but these were necessary keeping in mind the global changes that were taking place as well as how the minds of the consumer and their behavior was changing. There are still many things which can be done to make the logistics industry greener, there is still a lot of potential for improvement.
VENDOR MANAGED INVENTORIES IN SUPPLY CHAINS
Vendor managed inventories in supply chain is the new thing which allows companies to gain efficiency through partnering with other firms. In this concept the inventory is manage by the supplier who may be the manufacturer, distributor or even the wholesaler. The supply decisions are taken by the supplier, he will note when the order needs to be placed and when the delivery for the products should be made, keeping in mind the consumption pattern of the company. This concept is mostly used by the automobile industry according to the Quick MBA website. But according to Waller, M., Johnson, M.E. and Davis, T. the concept of vendor managed inventory system became popular in the late 1980’s and the companies which contributed to its popularity were Procter and Gamble and Wal-Mart.
The major reason why many companies have started using this system is because it reduces the risk of being out of stock and at the same reduces the inventory which is in the supply chain. The main features of the vendor managed inventory system are that it shortens the supply chain, forecasting of the supplies is centralized making it easier, quicker and more efficient. The manufacturer does not need to promote his products; the trucks which contain the product are filled in a prioritized manner such that the items which are most expected to stock out are top priority. The result that is achieved through the vendor managed inventory system is that the inventory is reduced and there are fewer stock outs.
Vendor managed inventory system is not so easy to implement and adopt; there are many challenges which arise in the process. This approach may be resisted by the distributors and the sales force because the roles of these people change and in the case of distributors there is a power shift to the manufacturer from the distributor. According to the Quick MBA Website, other challenges concerning the sales force include; loss of control over the supply of materials, some people might loose their job and this may negatively impact the whole organization. Also the effect on compensation changes since the sales force has no control over the inventory, their bonuses might be at risk, and reduced inventory might result in empty shelf space which may impact the market share of the product.
Challenges with respect to the distributors are: discounts, forward buying and promotions will be reduced, manufacturers might push extra inventory on to them, in case of weather hazards and strikes the distributor may be left with less inventory and the manufacturer may not be able to supply the product on time. The distributor sees a shift in power from him to the vendor, thus he may not get any leverage and benefit and the last concern of the distributor is that the vendor might integrate forward and create relationships with the consumer leaving the distributor out.
There are some challenges in general, i.e. technology upgrades because the systems need to be synchronized so that the supplier knows how much inventory is left over with the buyer so that he can provide the buyer with the supplies in time. This up gradation of technology requires an investment by both parties; the issue might arise when one party is not willing to make the investment because they think that the system will not benefit them. Also, the organizational structure needs to be revamped and this adds to the cost. But with technology improving so rapidly, the cost of implementing this system has decreased and there is a trickle down effect even on those manufacturers who have not yet adopted the system, according to the research by Waller, M., Johnson, M.E. and Davis, T.
According to Carter, P.L. et.al. there are many challenges that businesses will face in the coming years. These challenges have been laid down in the form of fourteen points by him and his colleagues who worked on the CAPS Research. They have mentioned that there are many examples of companies who have not been able to integrate their supply chain management system and to be able to do this; they must meet these fourteen challenges. They are; develop a supply chain vision and then develop a culture within the organization that would support this vision.
The vision should be made along the lines of how financial and non-financial results will impact and improve the supply chain integration. The company should not rely on one supply chain, they should devise multiple supply chains and each should focus on a different market segment. Supply chain should not work in isolation; rather it should integrate in the design of the product and service. The work should be positioned correctly on a global level.
Supply chain should focus on building relationships with customers as well as suppliers and these relationships should be for the long term. Another challenge is that sourcing should be a first level priority and the sales and operations process should be focused. The company should ensure that the right information is available to the right person at the right time, for this they need to build reliable and valid databases. Lack of trust can become a major problem, thus there is a need to build trust within the company as a whole. Also the company should try and share risks and rewards with their supply chain partners; this enhances the partnership and makes them feel important.
Supply chain management has evolved over the years and it has become a very important and strategic part of the business. Many new concepts have been introduced into this field and there are many more to come. There is a lot of potential in supply chain management and it can help the company achieve a competitive advantage. The three trends that I have discussed are factory gate pricing and consolidation, vendor managed inventory, and carbon footprints and green logistics. All these have helped reduce the costs of supply chain in the long run, in the short run they require investments to be made and costs increase as a result of this. There are many issues which will come up in the future and these will cause problems for the company, but the companies need to stay focused and trust the system that they have built.
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